Warren Buffet Loves Wells Fargo, but He Made a Dangerous Bet

The oracle of Omaha—Warren Buffet— went on Bloomberg TV Friday morning preaching to the choir again. This time he has reason to be upbeat, a reason to praise his investment in Wells Fargo. Recall, Buffet made some heavy bets on the banking industry a few years ago when the financial system was gyrating out of control. That was a gamble, and one perhaps he had to make. Since that time Treasury bonds have effectively yielded zero, if not negative. It was time for ole’ Warren to make a wager that would put him back in the grandstanding of great investors. What better bet than Wells Fargo, what better time than now?

Since 2009, Wells Fargo’s stock has catapulted from a bottom of around $9 a share to a sturdy price above $30 a share. The reason Warren Buffet bought Wells Fargo, and continued to add shares, is pretty simple; he understands their business model, and he knows how sturdy of a company they are. The San Francisco Business Times cites Buffet, “Buffett was gushing over Wells Fargo on Friday. ‘I like Wells better than anything by far,’ Buffett said. ‘We bought Wells this year. We've bought Wells month after month, well not every month, for a lot of years. ‘I like loading up on the one I like best,’ he said.

A lot of his portfolio is heavily invested in banking and finance; he is the full owner of Geico auto insurance. He buys these businesses because he understands them. Known by everyone in the investment community as a guru, Warren Buffet stated very overtly in his annual investment letter that financial derivatives were a ticking time bomb just waiting to annihilate the financial markets; sure enough that’s exactly what happened. He also mentioned how government bonds would yield near percent and provide negative returns on a real yield basis; sure enough that’s exactly what happened, as well.

Buffet is a masterful risk taker and now is a great time for praise, but there must have been a time during the last 36 months that he scratched his head and mindlessly tinkered with his model train wondering what on earth would become of his investment mote that he so preciously accumulated with Berkshire Hathaway throughout the years. As quoted from the movie Wall Street when Budd Fox’s prudent colleague enlightens him in a emotional evoking scene, “Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss.” Wells Fargo has kept Warren Buffet out of the abyss.